Risk Sharing in Labour Markets.

Journal article

Empirical work in labour economics has focused on rent sharing as an explanation for the observed correlation in cross-sections between wages and profitability. The alternative explanation of risk sharing between workers and employers has not been tested. Using a unique panel data set for four African countries we find strong evidence of risk sharing. Workers in effect offer insurance to employers: when firms are hit by temporary shocks the effect on profits is cushioned by risk sharing with workers. Rent sharing is a symptom of an inefficient labor market. Risk sharing, however, can be seen as an efficient response to missing markets. Our evidence suggests that risk sharing accounts for a substantial part of the observed effect of shocks on wages.

Authors: Bigsten, A; Collier, P; Dercon, S; Fafchamps, M; Gauthier, B

• Publisher: Oxford University Press
• Journal: World Bank Economic Review
• Volume: 17
• Issue: 3
• Pages: 349 - 366
• Publication date: 2003-12-01
• DOI: 10.1093/wber/lhg026
• ISSN: 0258-6770
• Language: English